Chapter 1: Introduction

1.1 This is the report on the review conducted by the Inspector-General of Taxation (Inspector-General) of the Australian Taxation Office’s (Tax Office or ATO) administration of Goods and Services Tax (GST) audits. This report is made under section 10 of the Inspector-General of Taxation Act 2003 (IGT Act).

1.2 The review was announced on 30 October 2006. Its terms of reference are reproduced in Appendix 1 to this report. Details of how the review was conducted are also given in Appendix 1.

1.3 The decision to undertake the review was prompted by concerns raised with the Inspector-General by industry and tax practitioners.

1.4 Large taxpayers and/or their advisers made the overwhelming majority of oral and written submissions to this review. Relatively few concerns about GST audits were expressed by small businesses and their representatives at meetings which the Inspector-General held around the country during the review. Early in the review, the Inspector-General therefore decided to focus the review on GST audits that are conducted on large taxpayers (that is, those which have an annual turnover of more than $100 million).

1.5 A number of key and subsidiary recommendations arose from the review. These are listed in Chapter 2 which also contains a summary of the review.

1.6 Although these key and subsidiary recommendations arose from examining GST audits of large taxpayers, a number of these recommendations are also relevant to GST audits of smaller taxpayers. In the light of the results of this review, and subject to his work program, the IGT may therefore conduct in the future a separate review of how the Tax Office administers GST audits for taxpayers with a turnover of less than $100 million.

1.7 Chapter 3 assesses the results of the Tax Office’s GST audits for large taxpayers. Chapter 4 deals with the Tax Office’s imposition and remission of penalties and interest as a result of such audits. Chapter 5 deals with other issues raised concerning GST audits of large taxpayers during the course of this review, including the Tax Office’s approach to margin scheme cases and to cases involving classification issues, the length of time of GST audits, Tax Office communication processes during GST audits and the training of GST auditors.

1.8 During the course of the Inspector-General’s review, the Tax Office made or proposed a number of changes to its processes for dealing with GST audits. Some of those changes directly addressed concerns raised with the Inspector-General. All changes made or proposed by the Tax Office are noted in this report wherever relevant.

1.9 The Commissioner of Taxation’s response to the review is in Appendix 2. The Commissioner’s detailed comments on each recommendation of the report are set out immediately below each recommendation.

Acknowledgements

1.10 Sincere thanks are extended to those businesses, accountants and tax practitioners and the organisations representing them who prepared written submissions for this review.

1.11 The Inspector-General of Taxation acknowledges with sincere thanks the cooperation of the Commissioner of Taxation and his staff.

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